Kansas Senate can’t pass tax plan, despite looming threats

Topeka  Aggressive messages from top aides to Republican Gov. Sam Brownback and the prospect of furloughs for state workers still couldn't push a new plan from GOP leaders for raising taxes to close a budget shortfall through the state Senate early Monday morning.

Top Republicans outlined a plan for raising $411 million during the fiscal year that begins July 1, aimed at unifying the Senate's fractured GOP supermajority so it would pass at the end of a marathon debate on tax issues. The plan would increase sales, cigarette and business taxes and borrowed elements from a package Brownback unveiled Saturday.

But GOP leaders ended the Senate's debate early Monday without a final vote on any proposal. They took a post-midnight break to have Republican senators review the new plan and were quickly on the defensive.

"You can take this plan and shove it," said Republican Sen. Greg Smith, of Overland Park.

Unable to resolve tax issues, lawmakers have yet to pass a budget for the next fiscal year. Monday was the 102nd day of their annual session, and, according to legislative researchers only two sessions have been longer — 1991's, at 103 days, and 2002's, at 107. Lawmakers traditionally set sessions for 90 days.

Budget Director Shawn Sullivan told GOP senators that all nonessential state workers will be immediately furloughed if the Legislature does not pass a budget by June 7. He said the state isn't authorized to pay workers beyond Saturday without a budget in place because of payroll rules.

He acknowledged that lawmakers could pass a short-term budget measure, but said "I don't know that anyone thinks that would be a good option."

The state's projected $406 million budget shortfall for the next fiscal year arose after lawmakers cut income taxes in 2012 and 2013 at Brownback's urging in an effort to stimulate the economy. One 2012 policy championed by the governor allowed 281,000 business owners and 53,000 farmers to avoid income taxes on their profits.

Republicans have been sharply divided over how to close the shortfall and some want to preserve the tax exemption for business owners and farmers, seeing it as a pro-growth policy. Other GOP lawmakers have pursued proposals to raise as much as $101 million during the next fiscal year by reinstating income taxes on their profits.

Revenue Secretary Nick Jordan told GOP senators in a meeting before the chamber's debate began that Brownback would veto any proposal that was more aggressive than one he outlined Saturday to raise $24 million from businesses during the next fiscal year.

The governor's plan would tax the compensation business owners guarantee themselves, regardless of their profits. Brownback spokeswoman Eileen Hawley said it's merely closing what's widely perceived as a loophole.

But Republican Rep. Mark Hutton of Wichita said raising business taxes is an "ethical issue." Critics of the exemption have noted that business owners can escape income taxes, while their employees' wages are still taxed.

Asked whether the veto threat will prevent him from pursuing such plans, Hutton said, "Hell, no!"

The statements from Jordan and Sullivan marked an aggressive shift in tone from the governor's administration toward the Legislature.

"The governor has said they need to get this job done," Hawley said.

The tax plan Brownback outlined Saturday would increase the sales tax to 6.65 percent from 6.15 percent and increase the cigarette tax by 50 cents a pack, to $1.29 from 79 cents.

The new Senate GOP plan includes the cigarette tax increase and embraces Brownback's modest business-tax proposal. But it would boost the sales tax to 6.5 percent.

The Senate's debate Sunday and early Monday instead focused on proposals from several GOP conservatives to eliminate exemptions to the sales tax, including those enjoyed by hospitals, blood banks and nonprofits such as the Boy Scouts when they buy goods. The vote was 30-9 against the idea.